Final answer:
The IRS's AOD 1996-10 clarified that transfers of property with retained life estate do not qualify for the annual gift exclusion, as they are not considered present interest gifts. This impacts estate planning strategies utilizing annual gift exclusions.
Step-by-step explanation:
The IRS's Action on Decision (AOD) 1996-10 holds significance in the realm of tax law, particularly concerning interpretation and application of the annual gift exclusion. This decision clarified that, for gift tax purposes, a transfer of property with the retained life estate does not qualify for the annual exclusion. This is due to the fact that the gift is not considered a present interest, which is one of the key criteria for a gift to qualify for the exclusion under the U.S. Internal Revenue Code. Therefore, those who wish to use the annual gift exclusion as a means of estate planning must ensure that the gifted property is not subject to future interests or restrictions that would make it a future interest.